G20 Focuses on Exchange Rate Volatility

Saturday, February 19th, 2011

News

The communiqué released by G20 finance ministers on Friday urged nations to take measures to ensure exchange rate stability and misalignment, according to Reuters. Additionally, prior requests to manage ‘competitive devaluations’ largely took a backseat during deliberations, according to the same article.

Broadly, the statement from the G20 finance ministers indicated that the G20 countries were dedicated to greater exchange rate flexibility and denoted the importance of improvements in the international monetary system that should be implemented in order to avert unexpected shifts in capital flows and exchange rate fluctuations. The debates grew heated as an argument between the major Chinese exporters and the debt-burdened importers from the US threatened to close negotiations altogether. The argument was largely regarding the timeline as to how soon trade gaps could be eliminated.

This meeting marks the first major G20 meeting under French chairmanship. Notably, China opposed the efforts of the G20 to make exchange rates an indicator to measure economic imbalance. According to Jim Flaherty, Canadian Finance Minister, China has given no indication that they “intended to be more flexible with their currency immediately.” He went on to say that China’s opposition is not just restricted to the exchange rate of its own national currency, but rather about growing imbalances on a global level. China has argued that emerging economies need a buffer in order to help them deal with economic shocks, and thus have rejected any policy adjustments, which might use these measures as indicators of their economic status.

Timothy Geitner, US Treasury Secretary, echoed the concern over China’s currency stating that it remains considerably undervalued, and the real effective exchange rate has only moved slightly in this new period of exchange rate reform.

France has called for a seminar in Shenzhen regarding the reform of the dollar-dominated global monetary order. This meeting will take place in the last three days of March.